Testimony on the Comparisons of Federal and Private-Sector Employees’ Compensation

The federal government employs about 2.2 million civilian workers—1.5 percent of the U.S. workforce—spread among more than 100 agencies in jobs that represent over 650 occupations. As a result, the government employs workers with a broad complement of talents, skills, and experience, and it competes with other government and private-sector employers for people who possess the mix of attributes needed to do the work of its agencies.

In fiscal year 2016, the government spent roughly $215 billion to compensate federal civilian employees. About two-thirds of that total was spent on civilian personnel working in the Department of Defense, the Department of Veterans Affairs, or the Department of Homeland Security. Federal employees typically receive periodic increases in their wages on the basis of performance, longevity, and changes in private-sector pay. However, lawmakers eliminated annual across-the-board increases for most federal civilian workers in calendar years 2011, 2012, and 2013.

How does the compensation of federal civilian employees compare with that of employees in the private sector? The answer to that question is complicated by the fact that the federal and private-sector workforces differ in characteristics that can affect compensation, such as experience, education, and occupation. On the whole, federal workers tend to be older, more educated, and more concentrated in professional occupations than private-sector workers. To account for such differences, the Congressional Budget Office has used data for 2011 through 2015 reported by a sample of households and employers to estimate differences between the cost of wages and benefits for federal employees and the cost of wages and benefits for similar private-sector employees, defined as those having a set of similar observable characteristics. Specifically, in its analysis, CBO sought to account for differences in individuals’ level of education, years of work experience, occupation, size of employer, geographic location (region of the country and urban or rural location), veteran status, and various demographic characteristics (age, sex, race, ethnicity, marital status, immigration status, and citizenship). This testimony updates a 2012 CBO report that compared the compensation of federal and private-sector employees for the 2005–2010 period.

Even among workers with similar observable characteristics, however, employees of the federal government and in the private sector may differ in other traits, such as motivation or effort, that are not easy to measure but that can matter a great deal for individuals’ compensation. Moreover, substantial ranges of compensation exist in both the federal government and the private sector among workers who have similar observable attributes. Therefore, even within groups of workers who have such similarities, the average differences in compensation between federal and private-sector employees do not indicate whether particular federal employees would receive more or less compensation performing a similar job in the private sector.

CBO’s analysis focuses on wages, benefits, and total compensation (the sum of wages and benefits). It is intended to address the question of how the federal government’s compensation costs would change if the average cost of employing federal workers was the same as that of employing private-sector workers with certain similar observable characteristics.